A Cue-Theory of Consumption

David Laibson

Scholarly Articles from Harvard University Department of Economics

Abstract: Psychological experiments demonstrate that repeated pairings of a cue and a consumption good eventually create cue-based complementarities: the presence of the cue raises the marginal utility derived from consumption. In this paper, such dynamic preferences are embedded in a rational choice model. Behavior that arises from this model is characterized by endogenous cue sensitivities, costly cue-management, commitment, and cue-based spikes in impatience. The model is used to understand addictive/habit-forming behaviors and marketing. The model explains why preferences change rapidly from moment to moment, why temptations should sometimes be avoided, and how firms package and position goods.

Date: 2000
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Published in Quarterly Journal of Economics -Cambridge Massachusetts-

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Journal Article: A Cue-Theory of Consumption (2001)
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